The new administration will tap the market in a few weeks…and initiate a road show to remove Panama from the “gray” list of GAFI

PANAMA
- In Brief
12 Jul 2019
by Marco Fernandez

The new economic team announced yesterday that they will test the capital markets with a US$ 2.7 billion placement. The main objective of the transaction is to finance the expected deficit by December and the payment of a big chunk of the arrears to contractors left by the previous government. These funds will be added to the 1 billion placed in March by the Varela administration plus 150 MM from IDB. A possible loan from CAF of US 150 million might be available.The uses of these funds could be the following, according to our estimates:Around US$ 2.0 billion to finance the 2019 expected public sector deficit (our estimation is 3.1% of GDP) and US$ 1,000 to clear partial contractor’s arrears. The remainder could be used as a cushion for unexpected expenditures (mainly investments). Minister Alexander mentioned that the new Administration still does not have all the complete information about accounts and subsidies payable. We have no indication of the timing and participants in the road show for this transaction. Next year (2020) the amortization of public sector international bonds is US$ 1.7 billion international bonds (US$ 1.1 billion in January). Therefore, the government may tap the market again by the end of the year for an amount that will depend on the windows of opportunities in the markets. There was some talk that the administration may prefund this issue taking advantage of the positive perception of Panama’s risk, the positive feeling and high liquidity of the international markets even if it represents a small negative carry-over.With this operation it seems clear that the government will have enough leverage to renegotiate the fiscal law, hopefully with a...

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